BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 802| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 802 Author: Williams (D) Amended: 6/22/15 in Senate Vote: 21 SENATE ENERGY, U. & C. COMMITTEE: 9-0, 7/13/15 AYES: Hueso, Cannella, Hertzberg, Hill, Lara, Leyva, McGuire, Pavley, Wolk NO VOTE RECORDED: Fuller, Morrell SENATE APPROPRIATIONS COMMITTEE: 6-0, 8/27/15 AYES: Lara, Beall, Hill, Leyva, Mendoza, Nielsen NO VOTE RECORDED: Bates ASSEMBLY FLOOR: 74-0, 6/2/15 - See last page for vote SUBJECT: Public utilities: energy efficiency savings SOURCE: Pacific Gas and Electric Company DIGEST: This bill allows an electrical corporation or gas corporation to recover in rates the cost of programs to bring a building up to legal code and to count all energy savings achieved toward the corporation's energy efficiency targets. ANALYSIS: Existing law: 1)Establishes a charge on electricity and natural gas consumption to fund cost-effective energy efficiency and AB 802 Page 2 conservation activities. (Public Utilities Code §§381 and 890) 1)Requires electric corporation procurement plans to first meet unmet resource needs through all available energy efficiency, and demand reduction resources that are cost effective, reliable, and feasible. (Public Utilities Code §§454.5 (b)(9)(C)) 2)Requires the California Public Utilities Commission (CPUC) to identify all potentially achievable cost-effective electricity and natural gas efficiency savings and to establish energy efficiency procurement targets and ratepayer-funded programs for electrical and gas corporations. Requires a gas corporation to first meet its unmet resource needs through all available natural gas efficiency and demand reduction resources that are cost effective, reliable, and feasible. (Public Utilities Code §§454.55 and 454.56.) 2)Requires the California Energy Commission (CEC) to develop a statewide estimate of all potentially achievable cost-effective electricity and natural gas savings, establish targets for statewide annual energy efficiency savings, and demand reduction for the next 10-year period. (Public Resources Code §25310) 3)Requires the CEC to develop and implement a comprehensive program to achieve greater energy savings in California's existing residential and nonresidential building stock. (Public Resources Code §25943) This bill: 1)Requires the CPUC, by July 1, 2016, to authorize electrical corporations or gas corporations to recover from ratepayers the cost of energy efficiency programs based on all estimated energy savings, including energy savings from bringing existing buildings into compliance with mandatory energy efficiency codes for existing buildings issued by the CEC. 2)States that the CPUC may adjust the energy efficiency procurement targets to reflect energy efficiency savings AB 802 Page 3 achieved in meeting or exceeding mandatory energy efficiency codes for existing buildings. 3)Requires the CPUC to prioritize energy efficiency activities consistent with existing statute governing electrical corporations' and gas corporations' energy efficiency activities. 4)States that the requirements of this bill do not require the CPUC to increase funding for the electrical or gas corporations' energy efficiency programs. Background Energy efficiency atop the load. The "loading order" guides the state's energy policies and decisions according to the following order of priority: (1) decreasing energy demand by increasing energy efficiency; (2) responding to energy demand by reducing energy usage during peak hours; (3) meeting new energy generation needs with renewable resources; and (4) meeting new energy generation needs with clean fossil-fueled generation. This policy has been adopted by the energy agencies - the CEC and CPUC - and its principles guide all energy programs. Consistent with the loading order, statute requires both electric and gas investor-owned utilities (IOUs) to meet unmet resource needs with all available energy efficiency and demand reduction that is cost-effective, reliable and feasible. The CPUC uses these criteria to establish energy efficiency targets for the IOUs. To achieve these targets, the IOUs (and, in some cases, community choice aggregators) administer energy efficiency programs with ratepayer funds approved by the CPUC. Currently funded at about $1 billion per year, the programs include a portfolio of financial incentives, loans, and rebates for installing energy efficient appliances, lighting, windows, HVAC systems, whole-house retrofits, and sector-specific efforts. Setting the bar high. According to existing CPUC rules, each IOU claims credit for energy savings from the portfolio of energy efficiency measures in its energy efficiency program. The CPUC evaluates the claimed energy savings and, after adjustment, authorizes financial rewards for the IOU. AB 802 Page 4 The CPUC measures claimed savings against a baseline, which the CPUC generally defines as being comprised of three factors: (1) "naturally occurring savings," (2) standard industry practice and (3) the CEC's Title 24 energy efficiency standards for existing buildings. The CPUC sets the baseline at this level to avoid "free ridership," that is, credit for energy savings that would have occurred absent the IOUs' energy efficiency programs. Currently, the CPUC assumes that measures to bring an existing building into compliance with CEC's energy efficiency standard would have occurred absent the IOUs' energy efficiency programs. (See figure below.) Recently, some parties have complained that the CPUC-established baseline of energy efficiency measures prevents realization of additional, cost-effective energy savings. This is because the baseline prevents the IOUs from receiving ratepayer monies for encouraging energy-saving building measures that fall below CEC's energy efficiency building standards. In fact, Pacific AB 802 Page 5 Gas and Electric (PG&E), this bill's sponsor, reports the results of two studies - both commissioned by PG&E and, as yet, not reviewed by an independent third party - that show that most potential cost-effective energy efficiency savings are represented by projects that are below the CEC's building code standards. PG&E, and others, contend that the state will not be able to attain the ambitious energy efficiency goals currently contemplated by the Legislature unless the CPUC credits the IOUs with the energy savings that result from below-code projects. Proponents additionally contend that the most cost-effective energy efficiency projects are those below the energy efficiency building standards. Pilot projects under way. The CPUC has ordered the IOUs to implement pilot projects in which the IOUs may receive rate recovery and credit for energy savings resulting from below-code energy efficiency building upgrades. The IOUs anticipate implementing measures pursuant to the pilot projects over the next two years; analysis of results will not be complete until 2018. In addition to the pilot projects, the CPUC is conducting a proceeding on energy efficiency. The hearing entails consideration of CPUC's setting of the energy use baseline against which the energy savings of the IOUs' energy efficiency programs are measured. Inherent to that consideration is evaluation of the specific proposal advanced by this bill, namely, allowing the IOUs to receive credit for energy savings resulting from below-code energy efficiency building upgrades. Claiming versus counting. This bill requires the CPUC to authorize an IOU to count all energy savings achieved toward overall energy efficiency goals or targets established by the commission. This requirement departs from existing practice, by which an IOU claims energy savings from energy efficiency measures and the CPUC assesses and adjusts those claims. Related Legislation AB 1330 (Bloom, 2015) establishes an energy efficiency resources standard. The bill is currently under consideration by the Senate Floor. AB 1094 (Williams, 2015) authorizes the CEC to analyze energy AB 802 Page 6 consumption of plug-in equipment and set energy efficiency targets and require the CPUC to work with the CEC to address electricity consumption by plug-in equipment. The bill was held in the Assembly Committee on Appropriations. SB 350 (De León, 2015) enacts the Clean Energy and Pollution Reduction Act of 2015. The bill is currently under consideration by the Assembly Floor. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee: Unknown costs, but likely in the low millions of dollars, to the Public Utilities Reimbursement Account (special), for additional staff at the CPUC to oversee, evaluate, and review the energy efficiency program. Unknown costs, but potentially in the millions of dollars, to the General Fund and various special funds to the state as a ratepayer of investor-owned utilities for additional energy efficiency program costs. SUPPORT: (Verified8/28/15) Pacific Gas and Electric Company (source) Bay Area Regional Energy Network California Building Industry Association California Business Properties Association California State Association of Electrical Workers California State Pipeline Trades Council City of Santa Monica Coalition of California Utility Employees Environmental Defense Fund Local Government Sustainable Energy Coalition Marin Clean Energy National Association of Energy Service Companies Natural Resources Defense Council Northern California Power Agency San Diego Gas & Electric Company Sempra Energy utilities Sierra Club California AB 802 Page 7 Southern California Edison Southern California Gas Company The Energy Coalition Union of Concerned Scientists Western States Council of Sheet Metal Workers OPPOSITION: (Verified8/28/15) California Energy Efficiency Industry Council Office of Ratepayer Advocates ARGUMENTS IN SUPPORT: According to the proponents, existing policy leads to a large pool of stranded energy efficiency savings potential - the actual energy savings from the building's existing equipment to the Title 24 code baseline - and significant energy waste. This policy hinders the state from achieving the governor's 2030 climate commitment to double energy savings in existing buildings. ARGUMENTS IN OPPOSITION: According to the opponents, the assumption that new buildings and equipment meet code is generally a good one. Were the CPUC to count energy efficiency savings based on existing conditions, as suggested by this bill, much of that energy efficiency will not be incremental to what would have occurred otherwise. As a result, ratepayers will likely pay more while achieving only minimal energy efficiency savings. ASSEMBLY FLOOR: 74-0, 6/2/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NO VOTE RECORDED: Brough, Chang, Chávez, Grove, Mayes, AB 802 Page 8 Obernolte Prepared by:Jay Dickenson / E., U., & C. / (916) 651-4107 8/31/15 15:47:13 **** END ****